Question 1

A $10 billion reduction in taxes increases Real GDP by $60 billion.Assuming a constant price level,what does the tax multiplier equal?

Accepted Answer

A)  70 
B)  6 
C)  50 
D)  0.17 
E)  0.83 
A)  70 
B)  6 
C)  50 
D)  0.17 
E)  0.83

Question 2

Some economists believe that government bailouts privatize the benefits of doing business and socialize the costs,leading to more companies needing to be bailed out.

Accepted Answer

A) True 
 B)False

Question 3

Economists who are in favor of smaller government tend to prefer ________________ when expansionary _______________ policy is needed to raise aggregate demand.

Accepted Answer

A)  tax cuts; fiscal 
B)  tax cuts; monetary 
C)  more government spending; fiscal 
D)  more government spending; monetary 
A)  tax cuts; fiscal 
B)  tax cuts; monetary 
C)  more government spending; fiscal 
D)  more government spending; monetary

Question 4

Economist A says that the economy is self-regulating.This economist most likely believes that

Accepted Answer

A)  the economy can get stuck in a recessionary gap. 
B)  wages and prices are inflexible downward. 
C)  wages and prices are flexible. 
D)  government should enact expansionary fiscal policy when the economy is in a recessionary gap. 
E)  none of the above 
A)  the economy can get stuck in a recessionary gap. 
B)  wages and prices are inflexible downward. 
C)  wages and prices are flexible. 
D)  government should enact expansionary fiscal policy when the economy is in a recessionary gap. 
E)  none of the above

Question 5

One area of disagreement among economists is the impact that income tax cuts will have on a budget deficit.Explain in detail the reasoning of both sides of this argument.

Accepted Answer

A budget deficit occurs when government

Question 6

Those economists who believe that the economy is self-regulating argue that wages are flexible,so they think that the economy can remove itself from a recessionary gap without government intervention.

Accepted Answer

A) True 
 B)False

Question 7

Suppose the government spending multiplier is 3.2.Assuming prices are constant,this means that

Accepted Answer

A)  a $1 decline in government spending will raise Real GDP by $3.20. 
B)  a $1 rise in government spending will raise both total spending and Real GDP (assuming prices are constant)by $3.20. 
C)  a $1 rise in government spending will raise investment spending by $3.20. 
D)  a $1 rise in government spending will change interest rates by 3.20 percent compared to what they were before the $1 rise in government spending. 
E)  none of the above 
A)  a $1 decline in government spending will raise Real GDP by $3.20. 
B)  a $1 rise in government spending will raise both total spending and Real GDP (assuming prices are constant)by $3.20. 
C)  a $1 rise in government spending will raise investment spending by $3.20. 
D)  a $1 rise in government spending will change interest rates by 3.20 percent compared to what they were before the $1 rise in government spending. 
E)  none of the above

Question 8

All economists agree that some types of government spending are better for the economy than other types of spending.

Accepted Answer

A) True 
 B)False

Question 9

"Demand-side fiscal policy is capable of changing Real GDP." This statement would be most likely to be said by an economist who believes that

Accepted Answer

A)  the AS curve is vertical. 
B)  the AS curve is upward sloping. 
C)  complete crowding out exists. 
D)  there is little,if any,crowding out. 
E)  b and d 
A)  the AS curve is vertical. 
B)  the AS curve is upward sloping. 
C)  complete crowding out exists. 
D)  there is little,if any,crowding out. 
E)  b and d

Question 10

Economist A believes that the government spending multiplier is equal to the tax multiplier,and thus would likely ________________ to close a recessionary gap.

Accepted Answer

A)  be indifferent between an increase in government spending and a decrease in taxes 
B)  prefer an increase in government spending to a decrease in taxes 
C)  prefer a decrease in tax to an increase in government spending 
D)  prefer the use of fiscal policy to the use of monetary policy 
A)  be indifferent between an increase in government spending and a decrease in taxes 
B)  prefer an increase in government spending to a decrease in taxes 
C)  prefer a decrease in tax to an increase in government spending 
D)  prefer the use of fiscal policy to the use of monetary policy

Question 11

Two economists,A and B,believe that the economy currently needs a strong dose of expansionary fiscal policy.Economist A wants to cut taxes while economist B wants to raise government spending.It is probably the case that

Accepted Answer

A)  Economist A believes the tax multiplier is larger than the government spending multiplier. 
B)  Economist B believes the government spending multiplier is equal to the tax multiplier. 
C)  Economist A believes the tax multiplier is smaller than the government spending mutiplier. 
D)  Economist B believes the tax multiplier is larger than the government spending multiplier. 
E)  a and d 
A)  Economist A believes the tax multiplier is larger than the government spending multiplier. 
B)  Economist B believes the government spending multiplier is equal to the tax multiplier. 
C)  Economist A believes the tax multiplier is smaller than the government spending mutiplier. 
D)  Economist B believes the tax multiplier is larger than the government spending multiplier. 
E)  a and d

Question 12

Which of the following questions is most likely to bring forth the same answer from each of 100 economists:

Accepted Answer

A)  What role should government play in the economy? 
B)  How does the Fed go about changing the money supply? 
C)  Is it better to use monetary or fiscal policy to stabilize the economy at the current time? 
D)  What are the effects on the economy of expansionary fiscal policy? 
E)  b and d 
A)  What role should government play in the economy? 
B)  How does the Fed go about changing the money supply? 
C)  Is it better to use monetary or fiscal policy to stabilize the economy at the current time? 
D)  What are the effects on the economy of expansionary fiscal policy? 
E)  b and d

Question 13

Economists who asset that the AS curve is vertical believe that changes in Real GDP originate only on the _____________of the economy; so government policy that is intended to impact the ____________________ of the economy will change only ______________,not ________________.

Accepted Answer

A)  demand side; supply side; Real GDP; prices 
B)  demand side; supply side; prices; Real GDP 
C)  supply side; demand side; Real GDP; prices 
D)  supply side; demand side; prices; Real GDP 
A)  demand side; supply side; Real GDP; prices 
B)  demand side; supply side; prices; Real GDP 
C)  supply side; demand side; Real GDP; prices 
D)  supply side; demand side; prices; Real GDP

Question 14

A rise in government spending could

Accepted Answer

A)  decrease both the size and scope of government. 
B)  increase the size,but not the scope of government. 
C)  decrease the size,but increase the scope of government. 
D)  increase both the size and scope of government 
E)  none of the above 
A)  decrease both the size and scope of government. 
B)  increase the size,but not the scope of government. 
C)  decrease the size,but increase the scope of government. 
D)  increase both the size and scope of government 
E)  none of the above

Question 15

Which of the following is true?

Accepted Answer

A)  All economists agree that the tax multiplier is greater than the government spending multiplier. 
B)  All economists agree that the tax multiplier is smaller than the government spending multiplier. 
C)  There is disagreement among economists regarding the size of the tax multiplier relative to the size of the government spending multiplier. 
D)  In the standard Keynesian textbook analysis,the tax multiplier is greater than the government spending multiplier. 
E)  c and d 
A)  All economists agree that the tax multiplier is greater than the government spending multiplier. 
B)  All economists agree that the tax multiplier is smaller than the government spending multiplier. 
C)  There is disagreement among economists regarding the size of the tax multiplier relative to the size of the government spending multiplier. 
D)  In the standard Keynesian textbook analysis,the tax multiplier is greater than the government spending multiplier. 
E)  c and d

Question 16

According to many economists,if wages are _________________,the economy _____________ remove itself from a recessionary gap,and thus ____________ government intervention is needed.

Accepted Answer

A)  flexible; can; no 
B)  inflexible; may not; some 
C)  flexible; may not; some 
D)  inflexible; can; no 
E)  a and b 
A)  flexible; can; no 
B)  inflexible; may not; some 
C)  flexible; may not; some 
D)  inflexible; can; no 
E)  a and b

Question 17

Among the economists who believe that an increase in government spending is likely to remove the economy from a recessionary gap are those who believe in the existence of complete crowding out.

Accepted Answer

A) True 
 B)False

Question 18

"Politics is too often the thing that gets in the way of good economic policy being implemented." The economist who said this most likely

Accepted Answer

A)  believes that fiscal policy is preferable to monetary policy when it comes to stabilizing the economy. 
B)  prefers discretionary monetary policy to rule-based monetary policy. 
C)  believes that there will be a lot of crowding out if government spending is increased. 
D)  prefers rule-based monetary policy to discretionary monetary policy. 
A)  believes that fiscal policy is preferable to monetary policy when it comes to stabilizing the economy. 
B)  prefers discretionary monetary policy to rule-based monetary policy. 
C)  believes that there will be a lot of crowding out if government spending is increased. 
D)  prefers rule-based monetary policy to discretionary monetary policy.

Question 19

Suppose the government spending multiplier is 1.5.This means that

Accepted Answer

A)  a $1 decline in government spending will raise Real GDP by $1.50. 
B)  a $1 rise in government spending will raise both total spending and Real GDP (assuming prices are constant)by $1.50. 
C)  a $1 rise in government spending will raise investment spending by $1.50. 
D)  a $1 rise in government spending will change interest rates by 1.50 times what it was before the $1 rise in government spending. 
E)  none of the above 
A)  a $1 decline in government spending will raise Real GDP by $1.50. 
B)  a $1 rise in government spending will raise both total spending and Real GDP (assuming prices are constant)by $1.50. 
C)  a $1 rise in government spending will raise investment spending by $1.50. 
D)  a $1 rise in government spending will change interest rates by 1.50 times what it was before the $1 rise in government spending. 
E)  none of the above

Question 20

"The only thing that results from expansionary demand-side fiscal policy is that the price level will rise." The economist who said this most likely believes that

Accepted Answer

A)  there is likely to be a lot of crowding out if government spending rises. 
B)  the AS curve is vertical. 
C)  there is unlikely to be much crowding out if government spending rises. 
D)  investment is interest inelastic. 
E)  b and c 
A)  there is likely to be a lot of crowding out if government spending rises. 
B)  the AS curve is vertical. 
C)  there is unlikely to be much crowding out if government spending rises. 
D)  investment is interest inelastic. 
E)  b and c

Exam 18: Public Choice and Special-Interest-Group Politics

A $10 billion reduction in taxes increases Real GDP by $60 billion.Assuming a constant price level,what does the tax multiplier equal?

Some economists believe that government bailouts privatize the benefits of doing business and socialize the costs,leading to more companies needing to be bailed out.

Economists who are in favor of smaller government tend to prefer ________________ when expansionary _______________ policy is needed to raise aggregate demand.

Economist A says that the economy is self-regulating.This economist most likely believes that

One area of disagreement among economists is the impact that income tax cuts will have on a budget deficit.Explain in detail the reasoning of both sides of this argument.

Those economists who believe that the economy is self-regulating argue that wages are flexible,so they think that the economy can remove itself from a recessionary gap without government intervention.

Suppose the government spending multiplier is 3.2.Assuming prices are constant,this means that

All economists agree that some types of government spending are better for the economy than other types of spending.

"Demand-side fiscal policy is capable of changing Real GDP." This statement would be most likely to be said by an economist who believes that

Economist A believes that the government spending multiplier is equal to the tax multiplier,and thus would likely ________________ to close a recessionary gap.

Two economists,A and B,believe that the economy currently needs a strong dose of expansionary fiscal policy.Economist A wants to cut taxes while economist B wants to raise government spending.It is probably the case that

Which of the following questions is most likely to bring forth the same answer from each of 100 economists:

Economists who asset that the AS curve is vertical believe that changes in Real GDP originate only on the _____________of the economy; so government policy that is intended to impact the ____________________ of the economy will change only ______________,not ________________.

A rise in government spending could

Which of the following is true?

According to many economists,if wages are _________________,the economy _____________ remove itself from a recessionary gap,and thus ____________ government intervention is needed.

Among the economists who believe that an increase in government spending is likely to remove the economy from a recessionary gap are those who believe in the existence of complete crowding out.

"Politics is too often the thing that gets in the way of good economic policy being implemented." The economist who said this most likely

Suppose the government spending multiplier is 1.5.This means that

"The only thing that results from expansionary demand-side fiscal policy is that the price level will rise." The economist who said this most likely believes that

What Economics Is About

Production Possibilities Frontier Framework

Supply and Demand: Theory

Prices: Free,controlled,and Relative

Supply,demand,and Price: Applications

Elasticity

Consumer Choice: Maximizing Utility and Behavioral Economics

Production and Costs

Perfect Competition

Monopoly

Monopolistic Competition, oligopoly, and Game Theory

Government and Product Markets: Antitrust and Regulation

Factor Markets: With Emphasis on the Labor Market

Wages,union,and Labor

The Distribution of Income and Poverty

Interest,rent,and Profit

Market Failure: Externalities, public Goods, and Asymmetric Information

Building Theories to Explain Everyday Life: From Observations to Questions to Theories to Predictions

International Trade

International Finance

The Economic Case for and Against Government: Five Topics Considered

Stocks,bonds,futures,and Options

Stocks,bonds,futures,and Options

Filters

Economists who are in favor of smaller government tend to prefer __ when expansionary _ policy is needed to raise aggregate demand.

Economists who asset that the AS curve is vertical believe that changes in Real GDP originate only on the _of the economy; so government policy that is intended to impact the of the economy will change only ,not ______.

According to many economists,if wages are ___________,the economy _ remove itself from a recessionary gap,and thus ______ government intervention is needed.